Energy bills are complex. Riddled with hidden fees and industry terms that can make the average person’s eyes glaze over, they can be somewhat confusing. But understanding each charge listed on an energy bill can help customers make smarter energy decisions in the long run. In fact, the charges on an energy bill reflect more than just the cost of energy consumed — other, often overlooked components also come into play.
Let us break it down for you.
More than a third of your energy bill is made up of what’s called the commodity charge. This is the cost of what comes out of the generator: the actual energy used to power a facility. Commodity charges have been on a recent downward trend as oil prices continue to fall.
But just because commodity prices have been historically low doesn’t mean that your energy bill will reflect that. As we mentioned, there are other components that will factor into the bill’s grand total.
Capacity & Transmission
About 20% of an energy bill is the capacity and transmission charge, which is the charge for use of actual energy transmission hardware like poles, wires and other grid technology.
Since 2011, energy customers have seen a 91% spike in these charges. Because the capacity and transmission charge has to do with infrastructure, it’s not likely to decrease anytime soon; as more companies go global and environmental standards soar, these charges will keep rising.
Something to note: when charging for capacity and transmission, utilities assign every customer a capacity tag. This is the number of total kilowatt hours used by that customer when energy demand and consumption is the highest (what’s known as peak demand times). Customers are charged for that specific capacity tag every month, regardless of whether they have reached that number or not. This means you could be paying a premium for energy you never use. To avoid this unnecessary charge, it’s possible to cut this capacity tag by managing your peak demand times and lowering energy consumption when utilities charge the most.
As the name might suggest, the distribution charge is the cost of moving energy from a plant to a customer. To enable a smarter, more reliable grid, these prices are projected to climb, but keeping track of how and when you use your energy, as well as understanding who is in charge of distribution, can help offset those costs.
Environmental & Renewables
Environmental and renewables charges comprise up to 15% of an energy bill. Utilities have pledged to invest $250B into renewable energy by 2050, which means this charge is only likely to increase in the coming years. Though it may be more expensive upfront, green energy typically yields higher returns in the long term. What’s more, many governments offer tax exemptions for using green power, incentivizing customers to invest in renewable energy while saving on their energy bills.
Every energy bill will include some miscellaneous charges, which are the expenses from government taxes and related fees. These charges are relatively inflexible, but they typically don’t take up too much of an energy bill — only about 3% or so.